Farming in America: The Origins and Costs of
Contemporary Agricultural Policy
In today’s debt conscious United States,
where every dollar spent by the government is meticulously analyzed and
oftentimes criticized, the government’s huge financial role in the agriculture
industry is largely ignored in spending debates. The recent passage of the $956 billion 2014
farm bill (formally the “Agricultural Act of 2014”) reflects this disconnect,
as the overarching framework remains reminiscent of a radically different
industry and time in American history. There are benefits to the continuation
of this Depression-era policy, but considerable drawbacks persist. Ultimately,
policymakers and budget watchers should reassess agriculture’s entitlement to
government assistance.
Evolution
of the American Farming Industry
Food production is radically different
today than when the Agriculture Adjustment Act was first passed in 1933 as a
reaction to the Great Depression and its devastating impact on the nation’s
farm community. At that time, the U.S.
farm industry employed half the population, mostly on small farms. Crop prices
plunged by 60 percent as farmers continued to produce more as prices fell in an
attempt to maintain incomes, thus continuing the vicious circle as the
increased supply only drove prices down further. Farmers began losing their
farms, thus potentially imperiling the nation’s food supply. The US intervened to guarantee crop prices
and farmer incomes. The AAA was based on
farm
price and income support programs, which have
remained a pillar of US
Agriculture policy to this day.
Attempts
to Revise AAA
As innovation, technology, and continued
barriers to imports caused large surpluses, and lower prices, in the 1960s, the
U.S. government increased its efforts to pay farmers to not plant crops in an
attempt to stabilize prices. The Food and Agriculture Act of 1965 reduced price
supports and created new income supports via direct income payments to farmers
who agreed to participate in acreage-reduction programs. From the 1970s to
1990s, the government mostly reaffirmed its position in agriculture with some
modifications including target prices (government reimbursing farmers if crop
prices fell below a certain level) and the creation of food stamps.
By 1996, despite the highest crop prices
in twenty years, farmers were receiving 21 percent of their income from the
government. The Republican legislature, with Democrat President Bill Clinton’s
approval, attempted to wean farmers off federal subsidies. However, this attempt to lessen the
government’s role in agriculture failed as farmers glutted the market and
prices dropped significantly. From 1996-2000,
corn saw the largest five year decrease in price since 1974.
As a result, the government enacted emergency
payments to farmers and continued income supports. In 2002, the Farm Security and Rural
Development Act introduced counter cyclical payments triggered when crop
commodity prices fell below a certain level.
Current
Environment
Today, most Americans no longer
participate in or rely on farming for their livelihoods. Farm industry workers make
up slightly less than one percent of the population. Since 1900, the number of
farms in the United States has fallen sixty-three percent; the farm industry
now primarily consists of a large number of massive, concentrated farms in
rural areas. Ninety-three percent of farming households receive “off-farm”
income (for example, income from members of the family who work in towns). Farmers
receive an average of $11,922 in subsidies each year; however sixty-two percent
of farmers did not collect any subsidy payments while ten percent of farmers
collected seventy-five percent of all subsidies. Despite
this new agricultural reality, government policy towards agriculture has
remained largely unchanged.
There are some compelling advantages, as
well some severe disadvantages, of this continuity.
Benefits
of Current Government Policy
Defenders of contemporary agricultural
policy coalesce around three major arguments: food stability, economic growth,
and contribution to U.S. foreign aid.
Stable
Food Supply
Proponents of government involvement
argue that subsidies are the only way to guarantee a safe and secure food
supply. Crop prices are inherently
volatile due to weather conditions and market movements outside their
control. Government insurance programs
smooth out the peaks and valleys which allow farmers to continue planting both
in tight and plentiful years. This
benefits not only farmers but the entire U.S. which perhaps takes for granted
its stable food prices caused by the willingness of farmers to continue plowing
their land. If farmers are not
guaranteed payment for certain crops or certain amounts of crops, farmers may
take land in and out of production, causing food prices to fluctuate. In a drastic scenario, proponents envision a
Great Depression-like scenario where falling food prices and minimal government
involvement cause farmers to lose their livelihood and the food supply to
decrease to dangerous levels. Only with
crop insurance and other subsidies, supporters argue, will farmers be convinced
to continue planting the crops on which America relies.
Strong
and Powerful Industry
Continued strong government support of
the US agriculture industry has helped made it a worldwide leader, thus helping
the US economy. A strong agriculture
industry that is a net exporter helps decrease the US trade deficit, a growing
concern. In 2013, the global rise of
prices of soybeans, corn and wheat led to a record year of agriculture exports,
exceeding $141 billion. The amount is continuing to grow as
developing countries mature and demand more of these staples. Currently sixty-five percent of US
agriculture exports go to developing countries. Supporters argue that the benefits to the US
economy from government involvement, including a stronger farm industry and a reduced
trade deficit, far outweigh the costs.
Boosting
U.S. Foreign Aid
The United States is the largest donor
of food aid in the world. Countries
around the globe, from Afghanistan to Zimbabwe, depend on the U.S. to feed
their populations; when a disaster occurs, the United States is often the first
and among the most generous to step in. None of this would be possible without
an efficient and strong agriculture system that creates more than enough food
to feed Americans. The United States has
numerous programs and agencies that administer food aid worldwide. The Food for Peace Program has directly
benefited more than three billion people in 150 countries since its inception
in 1954. In 2011, U.S. Department of Agriculture (USDA)
food aid alone amounted to $1.9 billion. In the words of President John F.
Kennedy, “Food is strength, and food is peace, and food is freedom, and food is
a helping to people around the world whose good will and friendship we
want.” In addition to the positive
ethical aspects of US delivering food to help feed the global community, in a
world of declining US military budgets, the soft power President Kennedy
references could prove to become increasingly useful.
Negatives
of Current Government Policy
The above arguments make a potent case
for heavy US government involvement in agriculture via subsidies and price and
income supports. Downsides persist,
however, that should make policymakers rethink contemporary policy.
Undermining
America’s Free Trade Efforts
The United States bills itself as a
model of free trade but fiercely protects its farm industry. U.S. trade negotiators travel the word
attempting to persuade foreign countries to lower trade barriers and allow US
companies to compete in their markets; foreign countries are loath to make
concessions, however, while the US stubbornly maintains that its farm subsidies
are off limits. In 2002, Brazil brought
the US to the WTO complaining about unfair government subsidies that U.S.
cotton farmers receive. The WTO ruled in Brazil’s favor and two
subsequent US appeals were overruled. Rather than retaliating by slapping
increased tariffs on US cotton and other American imported goods, which would
only hurt Brazil’s economy, Brazil threatened to suspend hundreds of millions
of dollars worth of intellectual property protections on US companies’
software, pharmaceuticals, movies and more.
This proved a far more compelling argument to US, who then agreed to pay
Brazil $147 million a year until a new farm bill was passed which would fix the
issue. Brazil and the US now disagree
whether the 2014 Farm Bill adequately addresses Brazil’s concerns and the
dispute remains ongoing. Even when
countries determine the pain of blocking US agricultural imports too great to
stomach, they will still find ways to respond which negatively affects all parties. While impossible to completely measure, the opportunity
costs of missed trade and foreign policy costs of alienating crucial trade
partners with farm subsidies is significant.
Contributing
to U.S. Debt
As “fiscal cliff” and “debt ceiling” ingrain themselves more into America’s vocabulary, every dollar spent by the
US government will be scrutinized and its effectiveness judged. Experts have estimated that the US government
pays about $20 billion in cash annually to farmers and owners of farmland via
direct subsidies. In 2012, Bloomberg reported that the USDA
spent $14 billion insuring farmers against the loss of crop or income, almost
seven times more than in fiscal 2000. With the passage of the Agriculture Act of
2014 and its increased use of crop insurance, this number will likely continue
to increase. While US voters may
determine supporting US agriculture is worth paying such expenses, they should
become more aware of the costs to them as taxpayers.
Fostering
Dependence and Indefinite Foreign Aid
While U.S. agricultural aid has
undoubtedly had a positive impact on the world, some of those involved in the
industry, notably Howard G. Buffet, have detailed some of the negative
consequences of an overabundance of free food aid to developing countries. These experts argue that while necessary in
emergencies and other short term situations, continuous aid perpetuates the
dependencies these countries have on aid country and organizations. As the US gives away grain and other food
supplies, companies within those recipient countries lose the incentive and
ability to grow. While at times, non-US
governments have no choice but to buy from foreign food companies to feed their
people, always doing so undercuts native companies who find it impossible to
grow and develop business models while competing with world class foreign
companies. While the US should continue
to be a leader in delivering food aid to those in desperate conditions around
the world, it should also revisit its approaches in order to challenge the
dependencies and market-distorting consequences, as well as unending foreign
aid commitments, that result from long-term food aid.
Conclusion
Are US food security, a strong export
industry and foreign aid programs worth the price of missed trade
opportunities, increased deficits and dependencies of developing
countries? Are we building a secure food
production system or are we compensating an already well-paid industry to take
more risks? The financial strength of
the farm industry and appeal of its claim to American cultural heritage have
long derailed a robust debate about the economic trade-offs of American
agricultural policy. The recent farm
bill partly overruled industry complaints in removing direct payments
(regardless of planting), a step in the right direction. However, more needs to
be done. History has shown that the recent years of high crop prices will end
at some point; with increased crop insurance, the US would find itself looking
at a massive cost to taxpayers if a slump occurs. It would be better to discuss that scenario
now rather than waiting. Government
support for agriculture will never and, should never, be completely eliminated,
for food security reasons, in particular.
However, a more discerning eye must be turned on an industry that for
years has been shielded from intense scrutiny due to its lobbying efforts and perceived
place in American culture.
Michael
T. Putnam is a Senior Associate at Triage Consulting Group in San
Francisco, CA. He has a B.A. in International Relations, with a minor in
Business, from the University of Southern California.
